As for which is better this is a personal choice and involves an investor's risk tolerance.

I say wait until this point to invest much time into this opportunity if you intend to acquire via conventional method, as opposed to going through the back door.Once under contract, prelim in hand and recognizing the title company's interpretation of the facts, move forward according to the tools you have and your tolerance for risk.

To get true cash flow in this rent range, you will need a bare minimum of 1.25% which puts you all-in at $400k based on $5k monthly rents.Now, if your play is to brake even or even be negative, but this has super appreciation potential, then that may be OK, depends on your tolerance for guess work (appreciation) and potential negative cash flow.

Will depend on several factors like the type of property, type of tenants, your risk tolerance, other assets you own, your estate planning, laws where the property is located, etc.Any lawsuits would be limited to the assets of the LLC and not your personal assets (assuming you run the LLC appropriately and the corporate veil is not pierced).

Consult an attorney if an LLC is right for you.Creating an LLC is case by case.It depends on the individual - what is his risk tolerance?

Plus, that's a lot of "ifs" before you've even closed on a property.If $740/month for her unit is below the monthly cash flow you will tolerate, and you're not willing to give her notice to leave, than you should pass on this deal.We all have our moral thresholds and that's fine. 

That's just my level of risk tolerance though.

Our system varies drastically from what most on here think is right,  but everybody has different risks tolerances.  

@Greg R. is right, you have to figure out your risk tolerance.

The answer does depend on how much time, energy, and money you are willing to invest as well as your personal risk tolerance, and investing philosophy.